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AMAZON
How Predictive Analytics Are Used To Get A
360-Degree View Of Consumers

Background
Amazon long ago outgrew their original business model of an online
bookshop. They are now one of the world’s largest retailers of physical
goods, virtual goods such as ebooks and streaming video and more
recently Web services.

Much of this has been built on top of their pioneering use of “recom-
mendation engine” technology – systems designed to predict what we
want, when we want it and of course offer us the chance to give them
money for it.

With this ethos in mind, Amazon have also moved into being a pro-
ducer of goods and services, rather than just a retailer. As well as com-
missioning films and TV shows, they build and market electronics,
including tablets, TV boxes and streaming hardware.

Even more recently, they have moved to take on food supermarkets

head-on by offering fresh produce and far quicker delivery through
their Amazon Now service.

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What Problem Is Big Data Helping To Solve?

Information overload is a very real problem, and retailers have more
to lose from it than most of us. Online retailing relies on making
as large a number of products or services available as possible, to
increase the probability of making sales. Companies like Amazon and
Walmart have thrived by adopting an “everything under one roof ”
supermarket model.

The problem here is that a customer can often feel overwhelmed when
presented with a huge range of possible options. Psychologically, wor-
ries about suffering from “buyer’s remorse” – wasting money by mak-
ing ill-informed purchasing decisions – can lead to our putting off
spending money until we are certain we have done sufficient research.
The confusing amount of options may even cause us to change our
minds entirely about the fact we need a $2,000 ultraHD television set
and decide to go on vacation instead.

It’s the same problem that often plagues many projects involving large
amounts of information. Customers can become data-rich (with a
great many options) but insight-poor – with little idea about what
would be the best purchasing decision to meet their needs and desires.

How Is Big Data Used In Practice?

Essentially, Amazon have used Big Data gathered from customers
while they browse the site to build and fine-tune their recommen-
dation engine.

Amazon probably didn’t invent the recommendation engine but they

introduced it to widespread public use. The theory is that the more
they know about you, the more likely they are to be able to predict
what you want to buy. Once they’ve done that, they can streamline
the process of persuading you to buy it by cutting out the need for
you to search through their catalogue.

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Amazon’s recommendation engine is based on collaborative filtering.

This means that it decides what it thinks you want by working out who
you are, then offering you items that people with a similar profile to
you have purchased.

Unlike with content-based filtering – as seen, for example, in Netflix’s

recommendation engine – this means the system does not actually
have to know anything about the unstructured data within the prod-
ucts it sells. All it needs is the metadata: the name of the product, how
much it costs, who else has bought it and similar information.

Amazon gather data on every one of their over a quarter of a billion

customers while they use their services.1 As well as what you buy, they
monitor what you look at, your shipping address to determine demo-
graphic data (they can take a good stab at guessing your income level
by knowing what neighbourhood you live in) and whether you leave
customer reviews and feedback.

They also look at the time of day you are browsing, to determine your
habitual behaviours and match your data with others who follow sim-
ilar patterns.

If you use their streaming services, such as Amazon Prime streaming

video or ebook rental, they can also tell how much of your time you
devote to watching movies or reading books.

All of this data is used to build up a “360-degree view” of you as an

individual customer. Based on this, Amazon can find other people
who they think fit into the same precisely refined consumer niche
(employed males between 18 and 45, living in a rented house with
an income of over $30,000 who enjoy foreign films, for example) and
make recommendations based on what they like.

In 2013, Amazon began selling this data to advertisers, to allow them

to launch their own Big Data-driven marketing campaigns. This put

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them in competition with Google and Facebook, which also sell

anonymized access to user data to advertisers.

What Were The Results?

Amazon have grown to become the largest online retailer in the US
based on their customer-focused approach to recommendation tech-
nology. Last year, they took in nearly $90 billion from worldwide sales.

Revenues for their cloud-based Web services businesses such as

Amazon Web Services have grown 81% in the last year, to $1.8 billion.

In addition, Amazon’s approach to Big Data-driven shopping and cus-

tomer services has made them a globally recognized brand.

What Data Was Used?

Amazon collect data from users as they browse the site – monitoring
everything from the time they spend browsing each page to the lan-
guage used in the user reviews they leave. Additionally, they use exter-
nal datasets such as census information to establish our demographic
details. If you use their mobile apps on your GPS-enabled smartphone
or tablet, they can also gather your location data and information
about other apps and services you use on your phone. Using Ama-
zon’s streaming content services, such as Amazon Prime and Audible,
provides them with more detailed information on where, when and
how you watch and listen to TV, film and audio.

What Are The Technical Details?

Amazon’s core business is handled in their central data warehouse,
which consists of Hewlett-Packard servers running Oracle on Linux,
to handle their 187 million unique monthly website visitors, and over
two million third-party Amazon Marketplace sellers.

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Any Challenges That Had To Be Overcome?

In the early days, by far the biggest challenge for Amazon and all
e-tailers was getting the public to put their faith in taking part in
online commercial activity. These days, thanks to enhanced security
and legislative pressure (and in spite of ever-increasing incidences of
data theft), most of us are no more wary of giving our card details to
an online retailer than we are to a bricks ‘n’ mortar one. Amazon use
Netscape Secure Commerce Server systems and SSL to store sensitive
information in an encrypted database.

What Are The Key Learning Points

And Takeaways?
Diversity of consumer choice is a great thing, but too much choice and
too little guidance can confuse customers and put them off making
purchasing decisions.

Big Data recommendation engines simplify the task of predicting

what a customer wants, by profiling them and looking at the purchase
history of people who fit into similar niches.

The more a business knows about a customer, the better it can sell
to them. Developing a 360-degree view of each customer as an indi-
vidual is the foundation of Big Data-driven marketing and customer
service.

Privacy and information security is an absolute priority. One large-

scale data breach or theft can destroy consumer confidence in a busi-
ness overnight.

REFERENCES AND FURTHER READING

1. Statista (2015) Annual number of worldwide active Amazon customer
accounts from 1997 to 2014 (in millions), http://www.statista.com/

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statistics/237810/number-of-active-amazon-customer-accounts-world-
wide/, accessed 5 January 2016.
For further details on Amazon’s use of Big Data, see:
https://datafloq.com/read/amazon-leveraging-big-data/517
http://expandedramblings.com/index.php/amazon-statistics/
Scientific explanation of Amazon’s recommendation engine, and col-
laborative filtering in general, by Greg Linden, Brent Smith, and Jeremy
York of Amazon. http://www.scribd.com/doc/14771615/Amazon-
Recommendations

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